Special Report: Regrowing an Essential Market: A Trio of Stocks to Profit on Potash

You wouldn't believe the number of life-supporting things that we take for granted.

Some of the stuff we don't even think about is the most valuable. For instance, the little-known mineral family called potash.

potashIts full chemical name is varies between potassium chloride, potassium hydroxide, and potassium carbonate just to name a few; a variety of potassium-laden minerals fall under the potash canopy. And while you may have heard the separate parts of the chemical names before, together they make a potent mixture.

A mixture that you've definitely come in contact with in your lifetime, even if you don't know it! And now, more than ever, potash has become essential to the way we live our lives.

Star on the Sidelines

Feel free to check off the potash products you've used recently. The mineral is more present in your life than you've ever guessed.

The rubber on the bottom of your shoes, for instance, was made using potash (potassium carbonate) as a chemical catalyst. The same form of potash is used in brewing beer, solidifying cement, and strengthening the textiles that make up your clothes.

Soap is, and has been for several hundred years, made using potassium hydroxide. This kind of potash is also used in water treatment, heat-treating steel, oil well drilling, and even just for melting ice!

The root mineral, potassium chloride, has a number of industrial uses, including aluminum recycling.

But short of being a major part of your clothes, home, buildings, and drinking water, potash has one more use that you'd miss more than any of these things if it were gone...

Fertilizer.

Potassium (in the form of potassium chloride) is one of the three most important elements in growing large-scale crops. This includes corn, wheat, rice, fruits, vegetables, sugar, cotton, and more...

wheatpotash

That's pretty much everything we eat nowadays. I'll bet there's not a single food you eat regularly that doesn't include at least one of those things. Meat doesn't count — animals bred for food also eat off of that list!

And without potash, we wouldn't have any of them in the quantities we need today.

Consider this: the population at the time of writing is more than 7.4 billion people. That number is expected to keep climbing to 9.5 billion by 2050, and hit 11.2 billion by 2100.

Don't scoff like that's too far off to worry about, either. We're facing major food shortages right here, right now, even with the highly-fertilized, strong crops we've managed to create.

The World Bank estimates that current food production will have to increase by 50% to feed everyone expected to be on the planet by 2050, and even more will be needed if crops weaken due to climate change.

90% of the world's potash supply is used in fertilizers of all kinds, from small bags for potted plants to large-scale agriculture. Potassium is essential to the way we grow food today. It increases a plant's water retention, nutrient value, and disease resistance.

Potassium also improves taste, color, and texture of many crops. These may sound less essential, but in today's world of specifically bred fruits and veggies, these things can be the difference between buying a crop or letting it go bad.

Think about the last time you bought apples from the produce section. Were you more likely to buy the dull ones with spots, or the bright shining ones? Corn is much the same; the colored corn we see at Thanksgiving actually comes out that way without any dye, but it's the sweeter, softer, bright yellow corn that most consumers are used to eating, and therefore are more likely to buy.

Potash is a necessary part of keeping your food in the stores, in addition to keeping your clothes together, your water clean, and your shoes springy.

The world as we know it just wouldn't work without these minerals. And you can bet your bottom dollar that something this quietly ubiquitous has a lot to offer perceptive investors.

Making a Mineral

Potash, if you break the name down, actually sounds pretty common: it's potassium ash.

It's the same potassium that we get from bananas for our own nutrition, but of course it's not produced commercially via fruit. Instead, it's produced in large quantities from either hard-rock mining or brines.

Potassium doesn't occur by itself in nature. It's extremely explosive when it comes in contact with water, which is why it's always part of a mineral mixture when in use.

It's the seventh most abundant element on Earth, making up about 2.6% of the planet's crust. That means it's even more common than sodium, the stuff that makes up everyday table salt, which stands at just 1.8% of the crust.

But we should be grateful. Potassium is a lot more important salt, as I explained before.

But before you run out and invest in this essential element, you should know where the world's potash comes from. The biggest producers are Canada, Russia, Belarus, China, and Germany. These countries alone produced more than 32 million tonnes of the 52 million tonne total in 2015.

potashmineMost of the world's potash production comes from underground mines. The mines were once inland bodies of water that were rich in potassium. Over time, the water evaporated and the element crystallized leaving behind large quantities of potash ore.

While some production still comes from potassium-rich brines through pumping and drying the element out, most commercial potash production comes from these solid ores. The largest of these deposits is in Saskatchewan, Canada, while the purest at 80% is just outside of Carlsbad, New Mexico.

Production is fairly straightforward: the ore is crushed, mixed into a brine-like liquid, and the potash separates and floats to the top. It's then refined, dried, and sold.

But the market for this commodity is a little more complicated...

You see, potash prices don't just abide by the rules of supply and demand for itself, but also for the crops it supports.

In recent years, a reduction in food prices has knocked down the price of potash. Some of the biggest producers have had to shutter mines for lack of use.

But it's not going to stay that way forever. In fact, potash consumption is expected to increase in the U.S. from 39 million tonnes per year to 43 million tonnes by 2019. And from 56 million to 65 million tonnes in Asia and South America by 2020. That may not look like a huge jump, but keep in mind that low prices have kept additional infrastructure from being developed in recent years, which means a supply squeeze is right around the corner.

And, of course, food demand won't be going anywhere any time soon. The market is going to have to support those 11.2 billion people somehow...

A Potash Trio

The best place for investors to look today may seem a little counterintuitive, but hear me out: those battered producers will be seeing the best of the profits in coming years.

Just take a look at any of three companies that make up Canpotex (Canadian Potash Exporters), an exportation and marketing firm: Potash Corp (NYSE: POT), Agrium (NYSE: AGU), and The Mosaic Company (NYSE: MOS).

CanpotexLogoIn spring of 2016, the firm settled a number of supply contracts with Chinese customers. Despite these orders only accounting for a small percentage of Canpotex's exports, it's still an important account to hold. China has the largest population of any country on the planet with more than 1.3 billion people in its ranks, and is the largest user of potash in the world.

The biggest company on the market is PotashCorp. And while it had a rough year in 2016, it's seen improvement through 2017.

Early 2016 saw the indefinite idling of production from its Picadilly mine in New Brunswick, Sussex in response to ongoing low prices and flat demand. It sounds dramatic, but it's actually just a part of business. It's a way to save money now, and save production for later. Their quarterly report shows earning per share up to $149 million, more than double the previous year's $75 million. They also sold 2.2. million tonnes of potash, compared with the previous year's sales of 1.8 million tonnes. 

Mosaic reduced selling, general and administrative costs in 2016, which lead them to greet 2017 on stronger ground, and as it turns out, Mosaic and PotashCorp have agreed to a merger, (they will come to be known as Nutrien) where they'll become the biggest potash fertilizer producer. This merger is a $36 billion-dollar deal and will bring stability to each company. 

The final member of the group, Agrium, will benefit is how diversified is business is. Rather than just selling commercial-scale potash supplies, this company has retail stores in the U.S., Australia, Canada, and South America. Profits from this business were the second-highest in the company's history as of the second quarter of 2016.

Plus, the company offers a dividend of 3.52%, which amounts to $3.50 quarterly. 

Next time to have a snack, down a glass of water, or want to add something valuable to your portfolio, remember potash, the little-known mineral family with a huge global presence.


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